Navigating the Changes to Student Loans in England
As the academic year begins, many students in England are embarking on their higher education journey as they begin the UCAS application process to study at University next year. For most, this involves not only choosing a course and a university but also understanding how student loans work to fund their studies. The system of student loans in England has undergone changes this year, and it's essential to have a clear understanding of the current landscape to make informed decisions.
You don’t need a confirmed place at University or college to apply for your funding, and its worth applying early to make sure its there in time for your course.
Tuition Fee Loans
One of the primary components of student funding in England is the tuition fee loan. This loan covers the cost of your tuition fees, and you won't need to pay for your course upfront. As of September 2023, universities in England can charge tuition fees of up to £9,250 per year for undergraduate courses, although some exceptions exist for specific courses such as medicine.
Students from England, as well as those from other parts of the UK (Wales, Scotland, and Northern Ireland), are eligible for these tuition fee loans. The loan is paid directly to your university by the Student Loans Company (SLC), and you'll start repaying it once you earn above a certain income threshold.
In addition to tuition fee loans, eligible students can also apply for maintenance loans. Maintenance loans are designed to help cover living costs such as rent, food, and transportation. The amount you receive depends on various factors, including your household income, where you live while studying, and whether you're studying in London or outside.
Maintenance loans can be a vital source of financial support, especially for students who need to relocate for their studies or those from lower-income backgrounds. They are typically paid directly into your bank account at the start of each term.
One of the key features of the student loan system in England is the income-based repayment structure. This means that you only start repaying your loans once your income exceeds a specific threshold. If you’re starting a degree after 1 August 2023, the terms for repaying your loan will be different to the students who began a course in 2022. As of September 2023, the repayment threshold for Plan 5 loans (which apply to students from England and Wales) is £25,0000 per year after the April that you finish your course. If your income falls below this threshold, you won't be required to make any loan repayments. When you hit a salary of £30,000 you will pay back £450 a year. The £25,000 threshold is frozen until 2027 when it is ‘planned’ to increase with inflation.
Once your income surpasses the threshold, you'll start repaying your loans at a rate of 9% of your income above the threshold. That means, if your income is under £25,000 before 2027, you won’t pay anything back at all during this time. The repayments are automatically deducted from your salary by your employer, much like income tax and National Insurance contributions. A big thing students need to be aware of is that your repayment doesn’t go on your credit file and it won’t effect applications for things such as mortgages. You will still need to make repayments if you live overseas and you can make over payments but you should read into this before hand as it’s not always the best approach for some people.
Understanding the interest rates on your student loans is crucial. Interest begins accruing on your loans from the moment you receive them. The interest rate is composed of two parts: a base rate and an income-related rate.
While you're studying, the interest rate is based on the Retail Price Index (RPI) until the April after you finish your course.
After you graduate, the interest rate varies depending on your income. For those earning under the repayment threshold, the interest rate is RPI. If you earn above the threshold, the interest rate gradually increases, topping out at RPI plus 3% for those earning £49,130 or more.
It's worth noting that these interest rates can make a significant difference to the total amount you repay, so it's important to stay informed about the current rates.
In England, any outstanding student loan balance is written off after a set number of years. For Plan 5 loans, this period is 40 years from the April you were first due to repay. Any remaining balance after this period is cleared, regardless of the amount.
An easy way to think of Plan 5 loans is to think of it as graduate tax, in that what you owe doesn’t affect what you pay each year, the main impact is based on whether you will clear the borrowing within the 40 years or not. With this change in mind, the government are now predicting that 52% of people will pay back the loan within the 40 years.
So in essence, unless you are a mid to high earner, didn’t take out the full Plan 5 loan or you didn’t need to take out a loan at all you, you don’t need to worry about what you ‘owe’, instead think of it as paying 9% tax on your income for your working life.
Navigating the world of student loans in England can be complex, but understanding the key components of tuition fee loans, maintenance loans, income-based repayments, interest rates, and loan repayments is essential for making informed decisions about your higher education funding.
You can find out more about Plan 5 student loans in this video of Martin Lewis. You can also access information on the gov website. Want to ask us any questions about student loans? Chat to us now.
Watch Martin Lewis talk through loans in more detail below.